SSTI is a buy, Roth says

Its first quarter results are in the book and Roth MKM analyst Richard K Baldry is still bullish on SoundThinking (SoundThinking Stock Quote, Chart, News, Analysts, Financials NASDAQ:SSTI).

On May 14, SSTI reported its Q1, 2024 results. The company posted Adjusted EBITDA of $3.0-million on revenue of $25.4-million, a topline that was up 25.4% year-over-year.

“I am very pleased with our performance in the first quarter – as our revenues grew 23% and gross profit increased 32% compared to the first quarter of 2023,” said CEO Ralph Clark. “Our results to start the year and this quarter’s momentum reflect the execution of our strategic growth levers, strength of our value proposition and traction of the SafetySmart™ platform – which are underpinned by our talented employees and their commitment to the success of our growing customer base across both the domestic and international markets. Our flagship offering, ShotSpotter, went ‘live’ in ten new cities and one university, and expanded in two current cities. Over the past year, we’ve grown our total live miles by 12% to over 1,100 miles, reflecting strong domestic demand and rising international interest. We’re also seeing robust cross-selling momentum, with Newport News adding our CrimeTracer and CaseBuilder solutions to complement ShotSpotter and ResourceRouter.”

The analyst said the quarter was more evidence of continued momentum.

“1Q24 revenues of $25.4M grew 23% yr/yr (we had forecast $25.6M), continuing 2H23’s acceleration,” he wrote. “A record ten new cities were added for its gunshot detection service in 1Q24 to attest to growing interest in its solutions despite the noise of Chicago’s potential 4Q24 exit. Software wins continue to highlight its increasing breadth of offerings, but most notable was its $12M prospect pipeline for its newly acquired SafePointe weapons detection segment. The record NY Department of Corrections deal signed in 2H23 confirmed to us that SSTI’s software segment was a strong second growth leg in addition to gunshot detection. We now view SafePointe’s large sales pipeline as pointing to a new third leg of growth for SSTI. With sales cycles shorter for SafePointe, we believe that growth should remain elevated in 2H24 and 2025 (aside from Chicago’s drag) and beyond as its solutions become more widely known and reference customers increase.

In a research update to clients May 15, Baldry maintained his “Buy” rating and price target of $30.00 on SSTI.

The analyst thinks SSTI will post EBITDA of $18.8-million on revenue of $105.3-million in fiscal 2024. He expects those numbers will improve to EBITDA of $22.6-million on a topline of $114.0-million in fiscal 2025.

“We believe SSTI’s strengthening growth and earnings power are not reflected by its depressed valuation, even after the announced loss of its roughly $8M/yr Chicago contract is factored in. Shares are down over 73% versus their 2021 highs and 48% versus their 52-week highs, while Chicago only represents 8% of revenues,” the analyst added. “Our 2024/2025 revenue forecasts of $105M/$114M would theoretically come in more than 81%/97% greater than the $58M revenue base SSTI had in 2021 when its shares last traded above $50, and both forecasts also call for record AEBITDA performances. With SSTI reporting record service coverage additions in 2023 (155 square miles added prior year highs of roughly 100 and targeting another 120 in 2024) and having closed its largest ever software deal in 3Q23 (a six-year $18M deal with NY’s Department of Corrections), we do not view SSTI as distressed, but simply as the near-term victim of a misguided political decision by a large client. Further, we note that its newest passive screening service is beginning to gain traction with 30 security “lanes” added in 4Q23 (three lanes have roughly the same economics as one square mile of gunshot detection services) and a sales pipeline of as much as 600 more lanes under consideration. Overall, SSTI appears poised to win at least double the value in recurring revenues by late 2024 than the potential loss of Chicago could cost (and 3x by the end of 2025), leaving its severe pullback unwarranted in our view. Our $30.00 price target implies a roughly 3.5x multiple to our year-end 4Q24 run-rate revenue forecast (and we exclude $2M/Q in anticipation of Chicago’s late 2024 exit). From an upside perspective, if SSTI is able to regain momentum via continued strong service coverage adds and software sales in 2024, and also wins a few meaningful new deals in its acquired passive security screening segment, it is possible that SSTI’s shares could return close to their former highs (2021’s high was $53.97) given its interim revenue scaling and service diversification efforts.”